Owning Real Estate learn to think like an accountant!

It is a difficult plan to build immediate cash flow in ownership, it COSTS money, most of the time when people buy real estate as investments they don’t realize the cost of becoming a landlord. Often the money you put into the property does not come back in your pocket- keep itemized records. Between taxes, insurance, utilities and maintenance, often the cash flow just isn’t there. Be aware increased taxes and/or the sale of the property , often brings more losses if not carefully planned. So, at least get some appreciation in the property- buy at the right time, and timing IS everything for a little mom and pop rental business. At the end of the year there should be cash sitting in your rental account checkbook, that is a good time for repairs and capital withdrawal.

Understand your MARKET area. Tucson is volatile and goes soft quickly. Over the years of owning properties , especially after 10 years, (unless you have managed to PAY OFF THE MORTGAGE) the cash flow may get harder. Large repairs begin to occur then. Thinking back over the years with my experience, I almost wonder if it would of been better to sell after ten years- moving into something newer and use my equity to buy more. The more units you have the more cash flow, balancing of vacancies is easier, and perhaps greater equity growth occurs, however more knowledge is needed. Money floating, carry overs, expensive repairs, and income accounting are extremely important in managing your own units. Try to calculate your return on money: if you spend $ 100,000 on a unit can you get a 5% net return? $5000.00 a year. That means after mortgage, utilities, taxes, and expenses. It was EASY with 3% interest rates, now it is way more difficult, because of insurance and taxes.

Real estate appraisers take income, leases, and management into account when looking at the value for a rental property. If you are under rented on your unit your appraisal could be less. If the rental neighborhood property price is less, your property is worth less, even if you have spent a lot in the property. Usually a cost approach is how an appraiser evaluate the value of the property. All costs are evaluated in the cash flow.

Sometimes holding isn’t a good choice if the neighborhood is changing. What is the competition out there? Watch for neighborhood gentrification. Tucson has seen a great deal of change in different areas of the city. Competition is a killer sometimes good, sometimes bad. Areas often change by zip code, where DO students now want to rent? retireres? young families, young professional?

Know your target market and how to be a landlord. Watch your cost on updates- keep them in line with the neighborhood, keep informed of the community, hire people you trust to do repairs, run credit reports, have strong leases that protect you, be an active landlord- it is your job! Never buy a property unless it can cash flow from the beginning.

Remember: What do you expect to get in return for your particular property?